Why These Four Rail Picks Are on My Radar

The One Stock Market Sector That You Need to Have on Your RadarThere’s a boom going on, and it’s old economy. The railroad business is alive and well. And equally as impressive as the freight and earnings results, railroad services and related businesses are benefitting.

Over the near-term, it’s likely there’s going to be further legislation regarding the safety of oil railcars, meaning the retrofit market will be substantial. I think investors should have the entire sector on their radar. Many of these stocks have already done well.

One company we looked at last year in these pages is The Greenbrier Companies, Inc. (GBX), which has plans this year to double its manufacturing capacity of tank cars, which are in high demand. (See “How to Play the Bakken Oil Boom While Oil & Gas Companies Are at Their Highs.”)

The company’s latest earnings results actually missed consensus, as the business wasn’t quite able to keep up with the hype. But this doesn’t mean that the future isn’t bright for this industry. Greenbrier’s one-year stock chart is featured below:


Greenbrier Cos ChartChart courtesy of www.StockCharts.com

One company that only recently experienced new interest from equity market investors is American Railcar Industries, Inc. (ARII). This firm, out of St. Charles, Missouri, sells hopper and tank railcars.

It’s a mature company, but earnings estimates are going up for 2015. The stock is not expensively priced, and its recent breakout from its previous consolidation is very interesting.

Another company that’s waiting for its stock market breakout to occur is FreightCar America, Inc. (RAIL), which has been trading in a range for the last five-and-a-half years.

This year, Wall Street analysts expect a big resurgence in top-line growth, but this is kind of a “show me the money” type of story. The company is transitioning away from coal railcars, and it really has to produce the numbers before institutional investors bid the stock. It’s a turnaround situation that’s definitely worth watching.

Greenbrier may be the big stock market winner in this sector, but right behind it is Trinity Industries, Inc. (TRN).

This company is much larger. It also manufactures inland barges; construction equipment, like guardrails and crash cushions; and energy infrastructure–related products. If you are interested in these kinds of old economy businesses, Trinity Industries is definitely worth putting on your radar, even if it’s just to serve as a gauge on economic activity.

The company’s financial results for its fourth quarter and year-end 2013 were surprisingly strong. Fourth-quarter earnings grew to $113 million from $71.0 million comparatively—that’s a 59% gain.

Fourth-quarter sales improved 24% to $1.26 billion. Of note was the company’s rail group, which experienced record fourth-quarter sales of $856 million, for a gain of 50% over the comparable quarter. Operating profits at this division surged 123% to $157 million, and its year-end backlog of railcar orders stood right around $5.0 billion.

This year, Trinity Industries expects earnings per diluted share of between $6.30 and $7.00. This compares to $4.75 in 2013.

The company is buying back its own shares, pays a dividend, and is making more acquisitions in related businesses.

There is a lot going on in the railroad business these days, and I suspect the operational momentum within the group will continue for a while yet. It’s a stock market sector you want on your radar.